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FRM Part II · FRM Exam Part II · Liquidity Risk Reporting and Stress Testing

A bank's treasurer is reviewing the BCBS 144 (Principles for Sound Liquidity Risk Management and Supervision) expectations for monitoring. Which description best matches the purpose of the liquidity risk monitoring tools discussed in the principles?

Liquidity monitoring tools give a consistent set of metrics, such as cash flow mismatches, funding concentration and unencumbered assets, that reveal emerging liquidity pressure early. They supplement internal limits, cover the whole balance sheet and are forward-looking, not merely post-event documentation.

  1. AThey are a single regulatory ratio that replaces internal liquidity limits
  2. BThey provide a consistent set of metrics, such as cash flow mismatches and concentrations of funding, that help identify emerging liquidity pressuresCorrect
  3. CThey are used only after a stress event has occurred to document losses
  4. DThey apply only to the trading book and exclude funding sources

Explanation

Monitoring tools are forward-looking metrics, including contractual cash flow mismatches, funding concentration and unencumbered assets, used to detect emerging pressures early. They complement rather than replace internal limits, and they cover the whole balance sheet, not just the trading book or post-event reporting.

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